First Fed Financial Corp

FirstFed Financial Corp., battered by losses on its portfolio of risky mortgages, is pursuing a plan to sell stock to the public in a last-ditch bid to avert a government takeover of the Los Angeles-based savings and loan operator. The proposed stock offering by the parent of First Federal Bank of California comes as bottom-fishing investors, betting the economy is improving, are showing interest in troubled lenders. But few banks have endured a year as bad as that suffered by FirstFed, the second-largest California-based thrift.

Jittery depositors found business being conducted as usual at Washington Mutual Bank on Friday, a day after it was seized by the government and sold to JPMorgan Chase & Co. But investors, fearing more sudden consolidations and failures, pounded the stocks of other banks that specialized in the type of risky mortgages that brought down WaMu. Shares of the parent companies of Downey Savings and First Federal Bank, two Southern California savings and loans, fell 48% and 45%, respectively.

Wachovia Corp.'s $24.2-billion purchase of Oakland's Golden West Financial Corp. is the latest in a string of California acquisitions by big banks hoping to tap into the state's growing population and vibrant entrepreneurial economy. Wells Fargo & Co.'s stagecoach dates to the Gold Rush era, but the San Francisco bank has been driven by executives from the Midwest since 1998, when Minneapolis-based Norwest Corp. took it over, keeping the iconic name and logo.

Investors are increasingly throwing in the towel on Southern California-based savings-and-loan mortgage lenders IndyMac Bancorp, FirstFed Financial Corp. and Downey Financial Corp. Defaults keep climbing on the nontraditional mortgages made by the companies, and bond buyers still shun securities backed by such loans. The lenders are awash in red ink, and their stocks are down by about half or more since the beginning of the year.

Sinking home values and the collapse of flimsy mortgages fueled a record number of foreclosures in California in the first three months of this year, dimming prospects for any quick recovery in the housing market. The number of homes lost to foreclosure rose to a record 47,171, more than four times as many as a year earlier. Default notices -- the first step toward foreclosure -- were sent to owners of 110,000 California homes from Jan.

D. P. Kennedy has become a veteran of the recession front. Orders slowed dramatically late last year at First American Financial Corp., the Santa Ana-based title insurance company that Kennedy heads. Layoffs have claimed 10% of the company's 7,000-employee work force nationwide. Expenses have been slashed. "It's tough. You bet it's tough," Kennedy said. But a funny thing happened on the way to doomsday.

Steve Nguyen bought his first home, a three-bedroom ranch house in Lakewood, three years ago with a no-interest sub-prime mortgage. Since then, the sub-prime market has virtually collapsed, leaving many nervous about the housing market and the national economy. But Nguyen, 31, is feeling confident. Though he figures his home's value fell at least $40,000 during the last year, he gained $200,000 in equity during the five-year boom.

By flooding the U.S. banking system with hundreds of billions of dollars in cheap capital, the government could find itself funding the most dramatic change in the nation's financial landscape since the deregulation drive of the 1980s. That's because the Treasury secretary and bank regulators will decide which banks get an infusion of government money, and which will be denied.

When Marion Sandler was starting out on Wall Street 34 years ago, she told her boss that she eventually wanted to become a partner. "They laughed," she said. "In those days, there was no beating around the bush. It was very clear a woman couldn't become a partner." Sandler, at least, has come a long way. She's now co-chief executive of Golden West Financial Corp. in Oakland, a company she and her husband built up after acquiring it in 1963.